What is an automatic investment plan?
As you know, we’re going through times of inflation. That means the purchasing power of your money isn’t what it used to be. For example, what you can buy with 10 JOD today is less than what you could a year ago. Needless to say, when this happens, you may be left in a tough personal financial situation.
And what we’re about to say may sound counter-intuitive, but one way to protect your finances from the effects of inflation is by investing. When you invest, you do so with the expectation that it will generate an income for you or that the value of the asset you’ve invested in will grow over time, allowing you to retain your purchasing power in the future.
If you’re about to stop reading this article thinking you’re too young to think about investing, think again! The name of the game with investments is time, and the more of it you have and the earlier you start, the bigger your returns could be.
One way to take up investing is to set up an automatic investment plan.
What is an automatic investment plan (AIP)?
It’s an investment program that allows you to regularly contribute money to an investment account. The funds are automatically deducted from your personal account on a schedule of your choice or your bank’s.
Why choose an AIP?
An AIP is an excellent option if you’re new to investing or don’t know enough about how the market moves. Adopting this investment strategy has also been known to help individuals improve at saving money because AIPs require you to make your contribution at the start of the month rather than at the end. Doing so will push you to become more disciplined with your spending habits by only prioritising essential living costs and reducing — or even eliminating — unnecessary expenses.
Moreover, many assume they have to have loads of money lying around to start investing. But this isn’t necessary with AIPs because they allow you to invest your money in smaller (but regular) amounts.
Investing the same amount of money on a periodic schedule (e.g., every month) is known as dollar-cost averaging, and it’s a major benefit of AIPs.
By regularly putting the same amount of money into the same type of investment, you will buy shares or units of an asset both when prices are low and high. This averages out your purchase price and helps you avoid investing a lump sum at a time of market volatility. Those who commit to this strategy will likely score big in the long run because it means they will invest when markets are down, and prices are low.
And let’s face it, it’s probably unwise for most of us to invest a large amount of money all in one go as we don’t have the expertise or time to understand and monitor markets. So, instead of constantly wondering when the right time to invest is, why not set up an EtihadSaver?
EtihadSaver is an investment plan that allows you to invest a recurring monthly amount in your choice of mutual funds. Once you agree on your monthly investment amount and destination funds with one of our Wealth Management advisors, a standing order will be set up authorising the bank to deduct that amount from your personal account the first week of every month.
Once the funds are withdrawn, they will be directly transferred to buying units in your selected mutual funds. Afterwards, you will receive a portfolio evaluation showing how many units have been purchased or sold and their market value.
As you can tell, AIPs are a low-maintenance investment strategy. Not to mention, they help remove the emotion from investing because your long-term strategy — i.e., the practice of dollar-cost averaging — remains the same even when markets turn volatile.
We hope this article has helped you better understand AIPs and their benefits!
Ready to start investing for the future? Click here.
